While the COVID-19 pandemic in calendar-year 2020 lowered fleet operating expenses because many vehicles were idled, this was not the case in calendar-year 2021, which witnessed fleet operating expenses increase across the board in all expense categories:
- Fuel prices are at their highest in the past seven years
- Tire expenses increased in reaction to the price increases for the raw materials used to manufacture tires.
- Preventive maintenance costs have increased due to the ongoing OEM migration to more expensive synthetic motor oils for new models.
- Maintenance costs are up due to an uptick in unscheduled maintenance as vehicles are kept in service longer because of the difficulties in sourcing replacement units.
- Warranty recovery costs were stressed in 2021 due to extended vehicle cycling and numerous parts shortages delaying repairs and incurring additional soft costs from prolonged downtime.
- Element Fleet Management
- Enterprise Fleet Management
- LeasePlan USA
- Merchants Fleet
- Mike Albert Fleet Solutions
- Wheels Inc.
Fuel Costs Trending Upward
“There has been a 34% increase in the cost spent on fuel; however, there has been a decrease of 3.63% on the number of gallons purchased compared to the same time last year. We are seeing a consistent rise in fuel cost which will make it more expensive for overall fleet operations,” said Tori Wroblewski, business analyst for Emkay.
One reason for the decline in gallons purchased has been an increased focus by fleets on route optimization and other fuel reduction strategies.
“Fuel prices have steadily increased since the end of 2020 and some regions are experiencing the highest costs per gallon, we have seen in the last seven years.” said Lindsay Wood, product manager at Wheels. “The increase in fuel cost reinforces the importance of having a well-managed program in place. Fleets are using telematics to optimize routes and educating drivers on proper ways to operate their vehicle to increase fuel efficiency and decrease costs.”
While there has been a dramatic increase in fuel prices in 2021 compared to 2020, it is important to analyze this data in the context of broader macro trends.
“Generally speaking, fuel prices slowly, but steadily increased throughout 2021 while miles driven also normalized for many fleets, returning to pre-pandemic levels. As a result, overall fuel spends increased for most organizations as compared to 2020. From a fuel spend perspective, 2020 was a significant outlier as many businesses suspended operations during the pandemic and several vehicles sat idle for extended periods. While the delta between this year’s fuel spends and last is certainly noticeable, when you delve deeper into the data, the difference isn’t nearly as troublesome as it appears and likely aligns relatively closely with pre-pandemic metrics,” said Andy Hall, manager, fuel & EV products for ARI.
A big determinant of the overall price of refined fuel, namely gasoline and diesel, is the price of crude oil.
“In 2021, crude oil prices increased over 2020 levels as economic recovery continued,” said Kelley Hatlee, senior service advisor for Enterprise Fleet Management. “It’s also important to note that fuel prices tend decrease during this time of year, but like many aspects of the industry, things may look different in 2021. After Labor Day, fuel prices typically decrease as demand decreases. However, we may see some short-term elevated fuel prices this year resulting from the dramatic reduction of oil production in the Gulf of Mexico during Hurricane Ida and as suppliers recover from the damage done to infrastructure and transportation systems in the region.”
Tools to Mitigate Cost of Fuel
For many years, fleets have adopted a multi-faceted approach to reduce fuel costs, but lately there has been a renewed interest in investigating the use of alternative powertrains.
“Fleets continue to evaluate improved fuel economy of newer vehicles versus older models. This typically means understanding the impact a hybrid, plug-in hybrid, or electric vehicles would make in specific routes or drivers identified with telematics data looking at daily range, time idling and other considerations,” said Jason Kraus, director – OEM and product management for Mike Albert Fleet Solutions. “Route planning and optimization coupled with gamification for drivers to support positive behaviors also plays a role, as does ensuring that tire pressure is checked regularly based on the impact to fuel economy and tire life. Another area of opportunity is utilizing the available data from fuel and telematics providers to reduce instances of rogue spending through purchases of premium unleaded fuel when standard would suffice and the use of fuel cards in non-fleet vehicles, as well as the impact of unnecessary idling.”
There is a widespread consensus that more companies are investigating the adoption of hybrids and battery-electric vehicles in their fleet operations.
“Companies are rethinking their fleets by going with more fuel-efficient options, such as hybrids and the overall right-sizing of their fleet; a common trend the industry has experienced during hard economic times. With electric vehicles becoming more readily available with various vehicle segment options, the door for many companies to get started with the transition to EVs has already begun,” said Wroblewski of Emkay.
Wheels also observed that more fleets are examining the adoption of alternative powertrains as part of a fuel reduction strategy. “Many fleets are exploring alternative powertrains – hybrids, plug-in hybrid electric, and full battery electric vehicles – to mitigate the cost of fuel. These alternative powertrains do bring some new costs of their own, specifically around infrastructure, but many fleets see the value in the investment that can deliver long-term savings in fuel, as well as CO2,” said Sara Sweeney, senior product manager at Wheels.
In the coming years, the biggest factor that will put downward pressure on fuel prices will be the increased use battery-electric vehicles in both the fleet and retail markets.
“We are seeing an accelerated interest in electrification – meaning both more hybrids being ordered and more interest in battery electric vehicles (BEVs),” said John Wuich, CAFM, vice president of strategic consulting services for Donlen. “About one in four light passenger vehicles ordered in 2021 are hybrids, double that of 2019/2020 and battery electric orders are up 10-fold in 2021 over 2020.”
Fuel Price Forecast for 2022
Most industry observers say the ongoing uncertainty in the market makes it difficult to provide short-term forecast on fuel pricing trends. “Similar to other areas of the automotive landscape, there’s still a great deal of uncertainty in terms of fuel projections; however, current forecasts indicate fuel prices may decline slightly in 2022 as production begins to outpace demand. As always, there are numerous variables that contribute to the price of fuel and one minor disruption could quickly reverse that outlook. For example, one area we continue to monitor closely is the potential impact of inflation. That being said, price is certainly top-of-mind for many fleet operators, and we have received some inquiries around fuel hedging but for the most part, hedging likely will not be pursued outside a few extremely niche scenarios,” said Hall of ARI.
One unknown variable are the unpredictable external forces may exert upward pressure on fuel prices in CY-2022. “We expect fuel pricing to continue to increase over the next year due to global demand outpacing supply. As cybersecurity risks and weather events threaten global production, fuel pricing will be especially sensitive to increases in the upcoming year,” said Jillian Grenier, assistant director, fleet products for Merchants Fleet. “Geopolitical volatility in petroleum-producing regions will also contribute to rising fuel costs. These factors will continue to drive fleet interest in alternative fueled vehicles and more fuel-efficient internal combustion vehicles.”
Originally posted on Automotive Fleet